Cross border insolvencies and financial restructurings are remarkably opaque considering we live in the Information Age. The mission of the Centre of Main Interest (the COMI) is to light some candles in the darkness and create a forum for further discussion. The Law Offices of Tally M. Wiener, Esq. are pleased to publish the COMI blog.
We welcome comments via posts to this site. Please send inquiries via email to tally.wiener@thecomi.com.

Counter

Wednesday, January 9, 2013

Dewey to chip in $4 per box to shred old client files

NEW YORK, Jan 9 (Reuters) - Bankrupt law firm Dewey & LeBoeuf has agreed to foot some of the cost of destroying about 345,000 boxes of old client files, a bill that could ultimately reach $1.4 million.

After months of negotiations with creditors and storage facilities, Dewey will pay the facilities $4 a box to shred old files beyond readability, according to court papers filed on Friday.

The proposal will go before Judge Martin Glenn in U.S. Bankruptcy Court in Manhattan on Jan. 24.

The fate of Dewey's old files has become an intriguing sub-plot in the unwinding of a once-proud firm that employed 1,000 lawyers in 26 worldwide offices at its height.

Dewey, now liquidating, filed the largest-ever bankruptcy by a U.S. law firm in May, and in October it reached a $71.5 million settlement with former partners to help pay back about $260 million owed to secured creditors.

Shredding Dewey's old client files, some of which date back to the 1930s, doesn't come cheap. The question of how to destroy those files that go unclaimed by clients has framed a difficult legal issue, pitting Dewey's fiduciary responsibility to creditors against its ethical duty to clients.

Bankrupt entities have an obligation to creditors to save as much money as possible to maximize payouts. But law firms also owe it to clients to preserve the privacy of their information.

Dewey in June raised the ire of some of its storage companies when it filed court papers proposing to destroy the files but keeping mum on how the process would be paid for.

In a contentious court hearing in July, Dewey said it would not likely be able to afford eventual destruction costs, while storage facilities, including Citistorage LLC and Iron Mountain Inc, voiced concern that they would be left on the hook.

At the time, Dewey had about 430,000 boxes of files scattered between 24 facilities in 14 states. Some have since been claimed by partners or clients, leaving about 345,000, according to Friday's filing.

Under the proposed agreement, the warehouses will destroy the remaining boxes and present Dewey with a certificate of destruction, earning them reimbursements of $4 per box. The total cost would come to $1.38 million if all 345,000 boxes were ultimately destroyed.

Dewey said the plan has the support of its secured lenders, whose cash collateral Dewey must use to fund the process.

The "procedures strike an appropriate balance between (Dewey's) obligations to the estate and the potentially applicable ethical and professional obligations," the firm said in court papers.

There is no law governing the destruction of client files for liquidating firms, which has made the issue controversial in many law firm bankruptcies. The deal hammered out in Dewey's case appears consistent with others in the past, including the $5-per-box price law firm Dreier agreed to pay warehouses after its 2008 bankruptcy.

The case is In re Dewey & LeBoeuf, U.S. Bankruptcy Court, Southern District of New York, No. 12-12321.